ISSN: 2222-6990
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The main objective for this study is to examine the relationship between liquidity management and profitability of commercial banks in Malaysia. A sample of top 5 commercial banks listed in Bursa Malaysia has been used to examine the relationship between the liquidity and profitability for the period of 10 years from 2011-2020. The data has been taken from the annual financial statements of the banks. In order to analyze data, the current ratio (CR), cash deposit ratio (CDR), loan to total deposit (LTD), capital to asset ratio (CAR) and non-performing loan (NPL) were used as a proxy for liquidity as an independent variable while the return on assets (ROA) was used as proxies for banks' profitability as dependent variables. The study concluded that current ratio (CR) is positively related to return on asset (ROA). This indicates that higher the current ratio (CR), higher would be the return on assets (ROA). However, the study reveals that non-performing loan (NPL) is negatively related to return on assets (ROA). This indicates that higher the non-performing loan (NPL), lower would be the return on assets (ROA). The study therefore recommended that banks keep liquidity as needed to meet up defined liabilities and not needlessly keeping too much liquidity as it erodes banks’ profits.
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In-Text Citation: (Zaharum et al., 2022)
To Cite this Article: Zaharum, Z., Latif, R. A., Isa, M. A. M., and Hanafi, M. H. (2022). The Influence of Liquidity Management on Banks’ Profitability. International Journal of Academic Research in Business and Social Sciences. 12(6), 820 – 829.
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